I agree, with one pretty major qualifier. The justification for eMarketer’s conclusion is the increase in ad spending that brands say they have targeted towards social networks since they have proven quite effective at aggregating a critical mass of consumers and attracting key target demographics. True enough. But social strategy isn’t about serving up more ads to these attractive social groups.

If you need evidence of that, just look at the many experiments in the social networking arena that have posted pretty grim results in terms of its ability to engage consumers. Click thrus remain pretty anemic, as do CPMs. There are exceptions, of course, with MySpace being one of the bright spots. They have successfully integrated ads for entertainment and music into their social environment – and are one of the critical venues that movie studios leverage when releasing new films, but this is very much the exception.

Representing social strategy as simply devising and implementing advertising schemes, even clever ones, is misleading at best and downright wrong at worst. Social strategy must get to the core of why people engage on networks in the first instance, and then devise thoughtful approaches to fill unmet social needs that these groups have that in the same instance also pull thru demand for that brand’s products or services. This means that social strategy must relate to both business and product strategy, not just marketing and communications tactics. It’s a lot more challenging than cranking out a clever ad campaign, but more effective longer term.

Saying that advertising is social strategy is sort of like saying that iPhone is about making telephone calls. It really undervalues the power that these dynamic networks can deliver to brands who are willing to harness this potential.

The question is where the Chrome OS fits. By having an operating system along with apps, Google may in fact also expand the advertising-friendly real estate it controls. In the long run that could benefit its advertising business. It isn’t entirely obvious though that the operating system or the applications are great places for advertisements and therefore not obvious that Google would want to invest too much in this direction. I don’t want to see ads while I’m working on a spreadsheet.

The greater fear, though, for Google’s investors, is that Google’s execs have Windows-envy. It is no more clear that Google can be a great OS/productivity apps company than it is clear that Microsoft can be a great online advertising company. Both are highly challenging from a technical and a business standpoint. One wonders whether Google’s and Microsoft’s investors would both be better off if the companies stuck to what they know how to do really well.

At the same time the flood of content on the Web has taken a chunk of attention time away from traditional media. That potentially hits traditional media with a double whammy. Their audience and advertisers can both leave them for cyberspace. More sadly, as audience leaves, advertisers have an extra reason to leave, and as advertising revenue declines traditional media has to cut content which in turn drives more audience away.

We’ve compiled Musings on Media a collection of blog posts, published articles and white papers to examine how the stiff winds of change are altering the media and advertising businesses. The pace of creative destruction is fastest for the newspaper industry. As you will see from reading the posts over the last couple of years we’ve watched the newspaper industry go into a death spiral. And we aren’t the only ones who are questioning their future, AdAge recently launched a pole asking, Do you think the New York Times Co. will make it beyond 2012? People questioned this when we first started writing. Now there is debate over whether the venerable New York Times will even survive while the Wall Street Journal seems to be getting slimmer every day. The rest of the media and advertising industry is changing more slowly and doesn’t have the sense of imminent doom that the newspaper industry has.

But changing it surely is. Online advertising has held up better than traditional advertising in part because companies think they are getting better value for their dollars. It is growing slowly but inexorably as more advertising inventory moves online and as innovation widens the gap between online and traditional methods. Radio and television have as well but it is only a matter of time—and it may be quite a long time—but most radio and television are now consumed over Internet connections.

We hope you find our musings over the years useful in understanding where we think the media and advertising businesses are likely to go in the next few years.

This is a bad development but comes on the heels of many other concerns over privacy. The ad business is—and always has been—about matching advertisers with consumers who might be interested in buying a product. That’s why we have niche magazines like Cape Cod Bride and daytime soaps. Behavioral targeting as I discuss in The Online Advertising Industry: Economics, Evolution, and Privacy helps consumers get relevant information while avoiding seeing irrelevant stuff, and helps advertisers find the right consumers for less money.

Unfortunately, various players in the online advertising industry have given targeting a bad name by invading people’s privacy without permission and engaging in other bad behaviors. They have shot the industry in the foot for sure—the bigger question is whether they’ve shot it in the head. The online advertising industry really needs to get this back on track—otherwise we’ll lose much of the technological promise of the online ad industry.

What should the industry do? I will give my thoughts in future posts.

There is a very large, well known player in the grocery segment here in the Northeast that has long been regarded as a loyalty program innovator. They were one of the first to issue plastic loyalty cards and key fobs and have even tried things such as hand-held item scanners and digital grocery carts. I don’t usually shop at this chain since there aren’t any that convenient to me, and so I never had the motivation to sign up for their loyalty program which is the only way to get discounts on selected items in the store.

This weekend, I found myself on the hunt for, of all things, hanging cedar blocks for my closets. Since it was a holiday weekend, I had few options. I decided to visit one of this chains’ stores not too far from my home. While there, I ended up picking up a few other grocery items, many of them also deeply discounted as part of their rewards program. I was sort of bummed that I didn’t have a loyalty card since I would have saved about $10 on those items.

At checkout, I chalked up the fact that the cashier did not ask for my loyalty card to the notion that most card-carrying members are trained to produce the card unprompted. But, to my surprise, and to my delight actually, I also noticed that the advertised discounts were in fact being applied to my items too. The total charged to my debit card reflected the $9.80 in savings afforded only, or so I thought, to loyalty club members. At least for that transaction, it didn’t take a swipe or a tap to get the same savings that the person in front me got by using her card.

Now, this could have been the store’s way of celebrating the holiday weekend or it could have been a system mistake. But, I wonder if it isn’t a subtle shift to a practice that eliminates the cost and friction associated with “loyalty clubs” in favor of one designed to lower prices to everyone so that as many people as possible come into the store to shop. If that is the case, what, then separates this “loyalty program” from good old fashioned price discounting? And, if this is the trend, are merchants trading off the chance to develop a profitable, loyal following for foot traffic that tends toward the more opportunistic customer?

Kinda makes you wonder if loyalty has lost its way.

Still the fact that the WSJ publisher is lashing out at Google as the cause of the newspaper death spiral is unsettling. Sure, Google has been a prominent player in the online world and has helped attract both eyeballs and advertisers away from the newspaper industry. But even if Google had never come into being, the newspaper industry was still going the way of the typewriter.

Lots of websites and online advertising suppliers have played a role in pulling viewers from physical newspapers - increasing the supply of online advertising inventory, driving down advertising rates, and luring advertisers to cheaper and more effective online channels. All this was set in motion by the development of the Internet and Web technologies and would have happened without Google. The newspaper industry got caught in a technological disruption. Rather than lashing out at Google they should be either figuring out new business models (tough, but not impossible, and we’ve made some suggestions) or just recognizing that it is time to rationally wind down a lot of newspaper properties.

But, as with all good strategies, the devil is in the details of the implementation. The biggest problem that newspapers have isn’t with people like me who grew up having newsprint on my fingers every morning and who have remained loyal in spite of the blackberry and iPhone apps and free digital versions of the paper. It’s the fact that the younger generation doesn’t feel compelled to read the paper – on or offline. Their news comes from a variety of niche sources that are all available to them for free (at least for now). The solution may not be as simple as trying to figure out how to erect a pay wall, but stepping back and evaluating the core product and what will make it attractive to a new audience. Barrons and the WSJ have survived (and thrive) in spite of their paywalls because they offer information and analysis that is “need to know” for anyone in business or finance – regardless of your age or demographic. The same doesn’t hold true for the New York Times, or my hometown paper which is on the verge of extinction, The Boston Globe.

What most people miss, I think, in this whole discussion is how interwoven print and online content production has become. The same teams that produce articles for print, also have those pieces posted online. Is it reasonable to expect the same quality of online content if the journalists who produce the print content that is also viewed online are “retired” because there is no longer the revenue on or offline to support them? Not so clear. Here’s a scenario to consider. My 26 year old colleague probably doesn’t buy the New York Times, but chances are that she pops on line to read it a few times a week. Would she miss it if it disappeared entirely and more importantly, does she value its content enough to pay a modest subscription fee to get its content online, knowing that if she didn’t, it would disappear entirely? Also not so clear.

So, I totally agree that it is about time that the industry is now talking seriously about new business models. Whether or not it’s too late, remains to be seen. A lot will depend upon how much independent soul searching these guys are willing to do. And, how much change they are willing to embrace.

She has a point. The frenzy over getting “social” reminds me of the frenzy in the late 1990’s over “ebusiness.” I remember the mad rush over how to ebusiness-ize business but not always because it was the right thing to do, but out of fear of being left behind if something wasn’t done immediately. We sort of know how that story ended, lots of ebusiness initiatives were tubed after massive infusions of cash and many more e-only companies crashed and burned.

Today’s experience with social networking strategies doesn’t have to end the same way, even though many marketers are privately anguished over the lackluster results of their “social” initiatives. One reason for that anguish is the lack of distinction made between social and digital strategies. They aren’t the same, even though social may use digital means to create engagement among groups. Another is that many of the social initiatives are driven by marcom, which is frankly only the tip of the social iceberg, if you will. Social strategies often deliver the most impact when they involve the development of social products or to innovate other aspects of the enterprise value chain such as customer service. Still another is the assumption that people are dying to organize and socialize around your products. Most marcom folks think product first then community – and our experience tells us that it is very much the other way around.

The anecdote to this corporate heartburn is viewing social as a way to drive the business strategy of an organization. We’ve seen how social strategy can be a powerful mechanism for creating strong relationships with customers and brands and products and, what we call, barriers to exit. Social strategy should be integrated into the overall business objectives of an organization in much the same way as ebusiness/ecommerce is today. We would argue that unless and until social strategy is viewed as more than a marketing tactic, brands will fail to monetize their investments in social programs and worse, will lose ground to those who get there first.

So, in other words, give GMOOT the boot.

First, the notion that businesses can make money by giving something away for free isn’t new by any stroke of the imagination. It is also a pretty well studied phenomenon by economists. I think the earliest mathematical treatment I saw was in R.G.D. Allen’s excellent book on mathematical economics which was published in 1938. He showed that if a firm is selling complements (think razors and blades) it can be profit maximizing to give away the razor and sell the blades. Then of course there’s a post-2000 work on two-sided markets—or multi-sided platforms—which Dick Schmalensee and I have described in detail in Catalyst Code and others have in a recent HBR article, Strategies for Two-Sided Markets. Lots of businesses—from ancient ones like the village matchmaker to new ones like Facebook—create value by getting multiple customer groups who need each other on the same platform. For these businesses it is often profit maximizing to charge one group of the customers little or nothing or maybe even pay them to join the platform. The negative price is actually not uncommon. People who pay off their credit card balances at the end of the month probably make money (if you include the rewards) on the card. And people are paid with content to come to advertising supported sites where their eyeballs are sold to advertisers. The content is only there as bait.

Second, the notion is positively dangerous in the hands of amateurs. As far as I can tell from the write ups—I don’t have the book yet—Anderson has a pretty simplistic view of free. I work with a lot of new platform businesses and the biggest problem they have is figuring out which customers if anyone to charge low, zero, or negative prices to and doing this in a way to make money. The social networking sites have adopted free to users, free to app developers, and not free to advertisers. The jury is really out on whether that model will work in the long run—especially as the expansion of advertising inventory online drives down rates. The other point here is that who gets it for free is often obvious only after the fact. When the charge card industry started in 1950 it was obvious that to be successful one needed people to have the card and merchants to take it; was it obvious that cardholders should get it for free and merchants should pay—only in retrospect.

Third, Anderson is wrong to throw in the free music etc. into this mix. There’s a big difference between Google deciding not to charge searchers, Internet sites showing copyrighted content that they don’t have permission to show and haven’t paid for. One can debate whether copyright protection has gone too far or not, and what the boundaries of fair use are, but an awful lot of stuff is free because it has been stolen. Maybe musicians will need to develop a different business model based on “free” if they can’t prevent people from ripping off their songs. But that’s different than the case of complementary goods and two-sided platforms where there’s an economic rationale for businesses to voluntarily give things away for free.

“Free” could be the next “just build share” which entrepreneurs followed like lemmings in the late 1990s. Remember—just get a lot of users and figure out the business model later.

By the way, you can read this blog for free. You might think from Anderson’s book that this is something new. In fact people have been writing and speaking for free for many millennia. It would be hard to find a worse candidate for the claim that a business model is new and revolutionary.

The Administration released an 88 page white paper on financial services reform on June 17th. The CFPA is a major new proposed agency and accounts for a significant portion of the text. Here is a synopsis based on my reading.

1. It covers all financial products but for investment products and services that the SEC and CFTC already regulate.
2. It has broad jurisdiction to make sure consumers have information they need; to protect consumers from abuse, unfairness, deception or discrimination; to make sure financial services markets operate fairly and efficiently; and to make sure traditionally
under served consumers have access to lending and other financial services.
3. It relieves the FTC of its primary role in consumer protection for financial services products.
4. Its regulations provide a floor on regulation for the states. States can adopt tougher laws if they want.
5. It can restrict or ban mandatory arbitration clauses.

The proposed CFPA would have wide authority to determine what financial services products could be marketed. This comes in two provisions.

1. It is authorized to define “plain vanilla” products which financial institutions would have to market alongside other products. That is a bank would have to offer a plain vanilla mortgage designed by the new agency.
2. It has a certain degree of pre-approval authority over the marketing and design of financial services products. Financial service providers would have to obtain a “no action” letter for a new product unless the CFPA took too long to respond.

The CFPA has far reaching powers that I don’t have space to go into here. One discussion I’ve had with other experts is whether the CFPA is closer to the Consumer Product Safety Commission which deals with problems after the fact, pulls bad products, and punishes wrongdoers; or whether it is closer to the Food and Drug Administration which doesn’t let pharmaceutical companies do much of anything that hasn’t been approved. It goes too far to say that the proposed CFPA is like an FDA for the financial services industry. But for better or for worse it is more intrusive in product design and marketing decisions that is the Consumer Product Safety Commission.

Congress will have to go along with this for the CFPA to come into being. It is sure to be subject to considerable debate.

My next blogs will discuss the pros and cons of this new agency.